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Grenada Preparing Unique Approach to Debt Restructuring

While it is still early in the process, it appears that Grenada is embarking on a hopeful quest to restructure its debt without undertaking the traditional demands of significant cuts to public sector budgets and widespread privatization programs. What makes Grenada’s position important is that the government has not been negotiating with the IMF in the traditional antidemocratic manner. Instead, the people are playing a crucial role in this consulation.

Photo Credit: Beyond Hall YuWhile the media coverage since the 2008 financial crisis has focused largely on the socio-economic fallout in Europe and North America, due to the vulnerability of their economies, nations in the Caribbean have been hit especially hard. Despite the passage of several years, there has been very little effort from multilateral organizations (aside from Venezuela’s PetroCaribe initiative) to take concrete steps to alleviate the compounding economic pressures the region is facing. However, in early 2013, the International Monetary Fund acknowledged specificities of the Caribbean economy in a report titled Caribbean Small States: Challenges of High Debt and Low Growth. The report highlighted the unique economic problems faced by the Caribbean, particularly with respect to “low growth, high debt, significant vulnerabilities, and limited resilience to shocks.”

While these problems unfortunately do apply to the majority of the Caribbean, the new millennium has been particularly unkind to Grenada. Grenada entered the 21st century on very unstable economic footing, as a ruling by the World Trade Organization put an end to the island’s protected agricultural trade with Europe. As a result, thousands of small farmers were out of work and Grenada lost a primary sector of its economy and the resulting government revenues. Making matters worse, Grenada was hit by successive hurricanes (Ivan and Emily) in 2004 and 2005, costing damage of an estimated 200% of its GDP. To spur economic recovery, Grenada renewed its focus on tourism, an industry whose subsequent hit by the 2008 financial crisis sent Grenada into a downward spiral.

This devastating sequence of events has undermined the Government of Grenada’s ability to service its debt. The economic instability also had serious socio-economic implications, with Grenada’s poverty rate reaching 37% and unemployment rate estimated at 25% in 2008. With the lack of economic growth, Grenada fueled its economy by the signing additional loans, leading Grenada to accumulate a debt to GDP ratio of nearly 110 percent. Given the inability of the government of Prime Minister Tillman Thomas to take the country off of the never-ending treadmill of debt, the voters of Grenada overwhelmingly voted to bring about change in the 2013 general elections.

As a result, the New National Party led by Keith Mitchell won all 15 seats, shutting out the incumbent Tillman Thomas and his National Democratic Congress Party from power. Prime Minister Mitchell took a strong stand of the unsustainable nature of the economy committing in March that no new loans would be taken out to finance the debt. Prime Minister Mitchell stated: “It is now time for Grenada to confront the fact that it cannot continue to pay its debts on current terms, and that the restoration of growth requires the debt overhang to be resolved. We need a fresh start, and it is therefore imperative that we approach our creditors promptly to discuss an orderly restructuring of our liabilities."

While many would argue that the statement by Prime Minister Mitchell was nothing but a polite introduction to roll out the red carpet for the implementation of deep neoliberal economic reforms, so far this has not been the case. While it is still early in the process, it appears that Grenada is embarking on a hopeful quest to restructure its debt without undertaking the traditional demands of significant cuts to public sector budgets and widespread privatization programs.

What makes Grenada’s position unique is that the government has not been negotiating with the IMF in the traditional manner. The long established manner was that economic restructuring was a highly undemocratic process in which governments would accept programs which disproportionately effect the lives of the poor and vulnerable. Instead, on October 1, the Government of Grenada signed a memorandum of intent to work with the Committee of Social Partners which is made up of the Grenada Conference of Churches, the Grenada Private Sector Organisation, the Grenada Trade Union Council, and the Inter-agency Group of Development Organisations.

While the debt restructuring has not been agreed upon, the Grenada Conference of Churches has put forth the following demands for the government to follow in their negotiations with the IMF:

"(1). We urge the government to push for a reduction in Grenada’s debt stock to a maximum level of 50% of GDP due to the harmful effects of debt above this level on economic growth. This will require, in practice, an upfront debt stock reduction of approximately two-thirds. It is essential that debt restructuring in Grenada restore long-term debt sustainability and support a return to economic growth.

(2). The debt restructuring process should involve all external creditors, namely commercial, multilateral and bilateral. This will ensure fairness between creditors and mean that each creditor is subject to a lower ‘haircut’ on its claims. This will also be an incentive for all creditors to take part. We encourage the government to explore options for a comprehensive solution. These include an independent debt sustainability assessment, external mediation and a creditors’ conference.

(3). We appreciate that the government wishes to resolve the current debt situation in a timely manner and secure access to new sources of external finance to meet the country’s needs. This is likely to involve an IMF-supported economic adjustment programme. Before the government signs any programme, it must seek consensus with the people on the package of reform measures the country will undertake. This will ensure that the programme respects the priorities of the local people. We therefore insist that the government share all documents with the Committee of Social Partners and the public with ample time for review and debate before any agreements are signed.

(4). Looking forward, it will be essential for Grenada to reduce the risk of future debt crises. We insist that the government strengthen legal and administrative structures to ensure greater transparency, accountability and participation. Specifically, we insist that the government commits to a mechanism which monitors and evaluates new debt commitments. This mechanism must involve the social partners. There is also a need to improve debt management capacities. These reforms will help put in place the tools to reduce the risk of future debt crises."

While it is not revolutionary in comparison to kicking the IMF out of Grenada entirely, the very fact that the government is in consultation with the people to draft a proposal which protects the interests for the poor instead of the banks should be applauded. For far too long the governments in the Caribbean have been telling the poor majority to sacrifice for economic restructuring programs that help only a privileged minority. While it remains to be seen how successful Grenada’s negotiations with the IMF will be given the tremendous imbalance in power, it is an important step forward for democracy in Grenada. Successful or not, people and governments around the world should take note and learn from the incredible fight Grenada is attempting to pick with the IMF. Hopefully this time Grenada’s effort to put forward an alternative model for the Caribbean will be allowed to run its course.

Kevin Edmonds is a NACLA blogger focusing on the Caribbean. For more from his blog, "The Other Side of Paradise," visit nacla.org/blog/other-side-paradise. Edmonds is a former NACLA research associate and a current PhD student at the University of Toronto, where he is studying the impact of neoliberalism on the St. Lucian banana trade. Follow him on twitter @kevin_edmonds.